Does Information Asymmetry Exist around Earnings Announcement?：Evidence from Korea

[Purpose]This study examines whether information asymmetry between investors exists after the adoption of Regulation Timely Disclosure and Fair Disclosure in Korea. [Methodology]We examine the relationship between abnormal returns on non－periodic disclosure and trade patterns of institutional and individual investors prior to non－periodic disclosure. We use a unique database including information about daily trading volumes of each investor types (institutional and individual investors) in Korea between 2002 and 2010. [Findings]We find a positive association between the volume of net purchases before non－periodic disclosure and abnormal returns for institutional investors, and a negative association for individual investors, These results suggest that institutional investors still engage in informed trading and capitalize on their superior access to information in the post－Fair Disclosure era. We also find that information asymmetry is more severe for smaller firms and firms with larger control－ownership disparity. [Policy Implications]Our results provide the foundation for more rigorous enforcement of monitoring activity for firms with greater potential to violate disclosure regulations. Specifically, regulatory bodies may need to improve regulatory measures to protect individuals investing in smaller firms and firms with higher control－ownership disparity.